The great majority of small enterprises rely on some form of funding. However, there is a delicate balance between having manageable debts and those that grow out of control. A single event, such as a market downturn, a late payment from a client, or a drop in sales, can sometimes tip the balance against your favour. Financial management for small businesses needs to include debt management strategies for companies. Having a solid debt management plan in place will help to prevent the growth of debt far beyond control. Here are some suggestions on how to reduce debt in business:
1) “Rainy day” funds
In a business, it is impossible to plan for every possibility, though it is wise to have a financial management strategy in place. Setting aside a sum of money in case of any unexpected expenditure is wise. Any money left over at the end of the month should be deposited into a savings account. This way. Business overdrafts and credit reliance can be avoided with a contingency fund.
2) Reduce unnecessary spending
If a business is incurring a lot of debt, one effective debt management strategy to apply is cutting costs. Reducing unnecessary spending where it does not impact the day to day running of the business can help a lot in regaining financial stability.
3) Increase revenue
In business, there are many financial management strategies that can be applied to increase revenue. For instance, offering yearly payment incentives to clients will allow a short-term cash flow injection. And in recent pandemic times where the workforce is increasingly remote, consider downsizing to reduce rent payments. They may seem like pretty simple solutions but are effective in attempts to reduce company debt.
4) Refinancing is an option
If there are any current company loans that have payments higher than the standard market rate as of now, consider refinancing the loan to obtain monthly instalments that are more manageable. Otherwise, focus on paying off the loans that have a higher interest rate.
5) Supply costs can be negotiable
When doing large purchases, bargain with vendors and ask for discounts. Use lower quotations from other suppliers as leverage, or if your company has a track record of timely payments, use that as a tool to negotiate a more flexible payment option or extend the payment term.
6) Boost credit score with good management
Obtaining any form of financial boost for a business requires credibility, which depends on the business’s credit history and rating. The cleaner the credit history, the better the chances are to obtain financing with lower interest rates. This is why a proper financial management strategy is important in businesses, as it will allow lower debt interests as well as an opportunity to apply for cheaper business loans in the future.
In Conclusion
Good financial management is all about the little things – cutting expenditures wherever possible. The same may be stated for small businesses when it comes to debt management strategies. Knowing how to manage debt in business and how to reduce company debt can keep your business afloat long after others have sunk. That being said, it is wise to keep a close watch on problems at the early stage and take immediate action to avoid debt from spiralling out of hand. Looking for more business financial tips? Head over to our blog to learn more.